The collapse of Bright Health Group’s business model and the murky rationale for a Fairview-Sanford merger should spur a much closer examination of the boards of directors responsible for governing these organizations.

How and why did Bright Health Group move from raising $924 million in an IPO in 2021 to dramatically withdrawing its health insurance products from many of its markets and ending up with a 2023 stock value well under a dollar a share?

While some industry insiders have questioned the leadership capacity of Mike Mikan, president, CEO and vice chairman, Mikan wasn’t acting as a lone wolf.

The board of directors green lighted Bright Health’s rapid expansion into multiple insurance products that would be available in several states.

What kind of due diligence was done by the board before embracing this business strategy? What kinds of data and analysis did the board require from management? On what basis did the Bright Health board members believe that Bright Health would be smarter than its competitors and could produce administrative cost advantages?

Bob Sheehy, a Bright Health co-founder and former health care executive and private equity adviser, chairs the 12-member board. Its most well-known board directors are Jeff Immelt and Andy Slavitt.

Immelt was CEO of General Electric from 2001 to 2017. In a Bright Health website bio, the organization describes Slavitt as “President Obama’s head of Medicare and Medicaid and overseeing the turnaround, implementation and defense of the Affordable Care Act.” Immelt and Slavitt both earned Harvard MBA degrees.

For public consumption, Bright Health has posted a 10-page document on its website that specifies its corporate governance guidelines.

In the document, the board acknowledges that it is “the ultimate decision-making body of the company.” The board’s role is defined as “directs and oversees the management of the business and affairs of the company in a manner consistent with the best interests of the company and its stockholders.”

How did Bright Health’s board and top management miscalculate what Bright Health could deliver in the marketplace?

Based on Bright Health’s current anemic state, the board of directors could very well be pondering a sale of the company or being forced to file for Chapter 11 bankruptcy.

Vague rationale for merger

Becker’s Hospital Review, which covers national health care news, recently examined financial statements from health systems in the U.S. It reported that Minneapolis-based Fairview Health Services had the seventh-largest overall loss in 2022.

It reported that Fairview had an overall loss of $562.9 million for the nine months that ended Sept. 30, 2022. Its operating loss for the period was $248.5 million.

In November, Fairview announced its desire to merge with South Dakota-based Sanford Health.

Minnesota Attorney General Keith Ellison has held hearings to examine the potential ramifications to Minnesotans if a merger occurred. Minnesota physicians and nurses have raised objections to a combination. In addition, the complicated financial and legal relationship between Fairview and the University of Minnesota has prompted university leaders to insist that the university’s teaching hospital remain under the control of Minnesotans.

Former DFL Gov. Mark Dayton and former Republican Gov. Tim Pawlenty testified before a Minnesota Senate committee in March that the University of Minnesota’s medical facilities must be decoupled from a Fairview-Sanford merger deal.

Moving beyond talking points

It’s been almost five months since the merger plan was unveiled, but it’s still unclear how specifically a Sanford acquisition would benefit Minnesota health consumers and how a combination would address Fairview’s ongoing financial problems.

In a written statement in November, Fairview CEO James Hereford, who will remain co-CEO for a year post merger, said that Fairview and Sanford shared a commitment to “affordable, accessible, and equitable care delivery.” His statement also referred to “complementary capabilities” and that if Fairview merges into the Sanford system that it would “positively impact the well-being of our patients and communities today and for decades to come.”

In public meetings and media appearances, it appears that Hereford and Bill Gassen, Sanford Health president and CEO, are careful to adhere to talking points.

Their responses often sound like Gassen’s statement in the written November announcement:

“As a combined system, we can do more to expand access to complex and highly specialized care, utilize innovative technology and provide a broader range of virtual services, unlock greater research capabilities, and transform the care delivery experience to ensure every patient receives the best care no matter where they live,” Gassen said.

The action verbs “expand,” “utilize,” “unlock,” and “transform” sound terrific, but anybody who has been a health care consumer or worked within the health care system knows there are no simple solutions.

In concrete terms, what would actually unfold after a merger occurred that affects patient care and what revenue streams could be generated to support high-quality health care delivery? Many health care experts say the current U.S. system is broken, so what would a merger do in reality?

Key University of Minnesota leaders serve on the Fairview Health Services board, and two of them have been speaking out publicly against the merger as originally proposed.

In late January, Dr. Jakub Tolar, dean of the University of Minnesota Medical School, testified in opposition to the merger at a joint hearing of two Minnesota House committees. Myron Frans, the U of M’s senior vice president for finance and operations, testified that a merger should be delayed because the University of Minnesota needs to be in control of its flagship medical facilities.

In early April, Sanford and Fairview extended their planned merger date for a second time. Instead of attempting to implement a merger by the end of May, the two systems pledged that they would give Ellison a 90-day closing notice.

Rich Ostlund, an attorney with the Anthony Ostlund law firm, chairs the 19-member Fairview board. If Fairview is absorbed into Sanford Health, current Fairview CEO Hereford would not remain with the merged health system.

Consequently, it would make sense to hear from Ostlund in a public setting about his rationale for a merger and what he anticipates for Fairview’s financial future over the next five years—with or without a merger. Ostlund joined the Fairview board a decade ago, so he’s fully aware of Fairview’s financial struggles.

Two Fairview board members with public profiles are Shawntera Hardy and Tim Marx.

Hardy is a former commissioner of the Minnesota Department of Employment and Economic Development and served as a deputy chief of staff to former Gov. Mark Dayton. A Black woman, Hardy was involved in diversifying state government and expanding economic opportunities for people of color. Marx, an attorney, served as president and CEO of Catholic Charities for 10 years.

Do the two of them support Fairview merging into Sanford? Under a merger, would the people of color and low-income Minnesotans they’ve previously served be helped or hurt by a Fairview-Sanford merger?

2023 is a pivotal year for Bright Health Group and Fairview Health Services.

Effective board governance couldn’t be more important because both organizations need to be reinvented.

In Bright Health’s case, a sale of the company’s diminished business may be the most prudent course of action. As a public company, shareholders and health care and business journalists can track board and management actions through company filings.

As a nonprofit entity, Fairview’s board could operate primarily in an opaque fashion. But the public already knows that the Fairview board isn’t united behind the original merger plan because of the public statements of Tolar and Frans.

Fairview’s many stakeholders deserve more information and details about the proposed acquisition by Sanford. To fully evaluate a merger’s impact on health consumers, Fairview employees, and the financial condition of the Fairview system, the public should hear from chairman Ostlund in public settings.

They also should hear from board members such as Marx and Hardy, who previously have held leadership positions in which they were expected to serve in the public’s interest.

Many Minnesotans continue to ask why Fairview’s health system, founded in 1906, should be turned over to South Dakota-based Sanford. It’s time for Fairview’s board members to directly address that overarching question.